Mutual Fund Distributor Exam - NISM - Study Material

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Study Notes for

NISM Series V

––

A:

MUTUAL FUND DISTRIBUTORS Exam

(Earlier - AMFI Exam)

Version

––

Aug 2018

Prepared By

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help you succeed in NISM exams. (NISM – – National Institute of Securities Markets National Institute of Securities Markets – – A SEBI A SEBI Institute).

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NISM Series 5A - MUTUAL FUND DISTRIBUTORS EXAM NISM Series 5A - MUTUAL FUND DISTRIBUTORS EXAM Assessment Structure Assessment Structure https://www.youtube.com/watch?v=_SmCb_UmiLA&list=PLCZvkZJiAVK56z_al_5b-4WMMRUXMWydc 4WMMRUXMWydc Total

Total Questions Questions = = 100 100 X X 1 1 mark mark each each ( ( NO NO NEGATIVE NEGATIVE MARKS)MARKS) Total

Total Duration Duration = = 2 2 hours.hours. Passing

Passing score score = = 50%50% Certificate

Certificate Validity Validity = = 3 3 years.years. Certificate Renewal

Certificate Renewal  Attend NISM CPE Session Attend NISM CPE Session Call

CallSrinivasan @ 98949 49988Srinivasan @ 98949 49988 for NISM CPE Training details in South for NISM CPE Training details in South India.India.

Chapterwise Weightages Chapterwise Weightages

Unit

Unit 1 1 Concept Concept & & Role Role of of a a Mutual Mutual Fund Fund 6%6% Unit

Unit 2 2 Fund Fund Structure Structure & & Constituents Constituents 4%4% Unit

Unit 3 3 Legal Legal & & Regulatory Regulatory Environment Environment 10%10% Unit

Unit 4 4 Offer Offer Document Document 6%6%

Unit

Unit 5 5 Fund Fund Distribution Distribution & & Channel Channel Management Management Practices Practices 8%8% Unit

Unit 6 6 Accounting, Accounting, Valuation Valuation & & Taxation Taxation 10%10% Unit

Unit 7 7 Investor Investor Services Services 12%12% Unit

Unit 8 8 Return, Return, Risk Risk & & Performance Performance of of Funds Funds 10%10% Unit

Unit 9 9 Scheme Scheme Selection Selection 10%10%

Unit

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YouTube videos

YouTube videos – – Topic wise Topic wise

1.

1. How to become a Mutual Fund Agent?How to become a Mutual Fund Agent?

2.

2. NISM Mutual Fund Distributors Exam Pattern NISM Mutual Fund Distributors Exam Pattern

3.

3. What is a Mutual Fund?What is a Mutual Fund?

4.

4. Terminologies used in Mutual Fund IndustryTerminologies used in Mutual Fund Industry

5.

5. Open and Closed end fundsOpen and Closed end funds

6.

6. Types of Equity FundsTypes of Equity Funds

7.

7. Types of Debt Mutual FundsTypes of Debt Mutual Funds

8.

8. Types of Hybrid Schemes, Balanced SchemesTypes of Hybrid Schemes, Balanced Schemes

9.

9. Tax Saving Scheme - ELSSTax Saving Scheme - ELSS

10.

10. Gold Exchange Traded FundGold Exchange Traded Fund

11.

11. Passive Funds and Fixed Maturity PlansPassive Funds and Fixed Maturity Plans

12.

12. Index FundsIndex Funds

13.

13. Tracking Error - Index FundsTracking Error - Index Funds

14.

14. Product Labeling - Riskometer Product Labeling - Riskometer

15.

15. Mutual Fund Structure and ConstituentsMutual Fund Structure and Constituents

16.

16. Dividend Distribution TaxDividend Distribution Tax

17.

17. Grandfather Clause introduced in Budget and Taxation changesGrandfather Clause introduced in Budget and Taxation changes

18.

18. Capital Gain TaxCapital Gain Tax

19.

19. Calculation of Long term capital gain tax Calculation of Long term capital gain tax using Indexationusing Indexation

20.

20. Tax Deducted at Source and Securities Transaction TaxTax Deducted at Source and Securities Transaction Tax

21.

21. Cut off timing - NAVCut off timing - NAV

22.

22. Liquid Funds Cut off timingLiquid Funds Cut off timing

23.

23. Liquid Funds - RedemptionLiquid Funds - Redemption

24.

24. Who can Invest in Mutual Funds?Who can Invest in Mutual Funds?

25.

25. Micro SIP and PAN Exempt CasesMicro SIP and PAN Exempt Cases

26.

26. Risk Adjusted Performance - Sharpe RatioRisk Adjusted Performance - Sharpe Ratio

27.

27. Risk Adjusted Performance - Treynor ratio and AlphaRisk Adjusted Performance - Treynor ratio and Alpha

28.

28. Mutual Fund Offer DocumentMutual Fund Offer Document

29.

29. Statement of Additional InformationStatement of Additional Information

30.

30. NAV, Sale Price, Repurchase Price NAV, Sale Price, Repurchase Price

31.

31. NAV Calculation - Part1 NAV Calculation - Part1

32.

32. NAV Calculation - Part2 NAV Calculation - Part2

33.

33. Asset Allocation, Strategic Asset AllocationAsset Allocation, Strategic Asset Allocation

34.

34. Fixed and Flexible Asset AllocationFixed and Flexible Asset Allocation

35.

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40.

40.What is Sensex and Nifty? How it What is Sensex and Nifty? How it is calculated?is calculated? CONCEPT AND ROLE OF A MUTUAL FUND CONCEPT AND ROLE OF A MUTUAL FUND WHAT IS A MUTUALFUND? WHAT IS A MUTUALFUND? https://www.youtube.com/watch?v=lhTtfaFoV90&list=PLCZvkZJiAVK56z_al_5b-4WMMRUXMWydc&index=2 4WMMRUXMWydc&index=2

A Mutual Fund is a trust that pools the savings of a number of investors who share a common A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. Anybody with an investible surplus of as little as a few hundred rupees can invest in financial goal. Anybody with an investible surplus of as little as a few hundred rupees can invest in Mutual Funds. These investors buy units of a particular Mutual Fund scheme that has a defined Mutual Funds. These investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy.

investment objective and strategy.

The money thus collected is then invested by the fund manager in different types of securities. The money thus collected is then invested by the fund manager in different types of securities. These could range from shares to debentures to money market instruments, depending upon the These could range from shares to debentures to money market instruments, depending upon the scheme‟s stated objectives. The income earned through these investments and the capital scheme‟s stated objectives. The income earned through these investments and the capital appreciation realized by the scheme is shared by its unit in proportion to the number of units appreciation realized by the scheme is shared by its unit in proportion to the number of units owned by them.

owned by them.

Thus a Mutual Fund offers an opportunity to invest in a diversified, professionally managed basket Thus a Mutual Fund offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low-cost.

of securities at a relatively low-cost.

TYPES OF MUTUALFUND SCHEMES TYPES OF MUTUALFUND SCHEMES

https://www.youtube.com/watch?v=07mktpDEYiI&index=3&list=PLCZvkZJiAVK56z_al_5 https://www.youtube.com/watch?v=07mktpDEYiI&index=3&list=PLCZvkZJiAVK56z_al_5 b-4WMMRUXMWydc b-4WMMRUXMWydc https://www.youtube.com/watch?v=xlCsRC3cqzI&list=PLCZvkZJiAVK56z_al_5b-4WMMRUXMWydc&index=4 4WMMRUXMWydc&index=4 (A) By Structure (A) By Structure Open-Ended Schemes

Open-Ended Schemes do not have a fixed maturity. You deal with the Mutual Fund for yourdo not have a fixed maturity. You deal with the Mutual Fund for your investments & Redemptions. The key feature is liquidity. You can conveniently buy and sell your investments & Redemptions. The key feature is liquidity. You can conveniently buy and sell your units at Net Asset Value (NAV) related prices, at any point of time. Investors can sell their units to units at Net Asset Value (NAV) related prices, at any point of time. Investors can sell their units to the scheme through a re-purchase transaction

the scheme through a re-purchase transaction at re-purchase price, which is linked at re-purchase price, which is linked to NAV.to NAV.

Close-Ended Schemes

Close-Ended Schemes have a stipulated maturity period are called close ended schemes. You canhave a stipulated maturity period are called close ended schemes. You can invest in the scheme at the time of the initial issue and thereafter you can buy or sell the units of invest in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed.

the scheme on the stock exchanges where they are listed.

Interval Schemes

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transaction period (during which both subscription and redemption may be made to and from the transaction period (during which both subscription and redemption may be made to and from the scheme). Scheme should be compulsorily listed in Stock Exchange during the interval period. scheme). Scheme should be compulsorily listed in Stock Exchange during the interval period.

SEBI - Categorization and Rationalization of Mutual Fund Schemes SEBI - Categorization and Rationalization of Mutual Fund Schemes

The Schemes would be b

The Schemes would be broadly classified in the following groups as per SEBI roadly classified in the following groups as per SEBI guidelines:guidelines: Equity Schemes, Debt Schemes, Hybrid Schemes, Solution Oriented Schemes, Other Schemes Equity Schemes, Debt Schemes, Hybrid Schemes, Solution Oriented Schemes, Other Schemes

Equity Schemes Equity Schemes https://www.youtube.com/watch?v=eSQnv0e9awQ&index=6&list=PLCZvkZJiAVK56z_al_5 https://www.youtube.com/watch?v=eSQnv0e9awQ&index=6&list=PLCZvkZJiAVK56z_al_5 b-4WMMRUXMWydc b-4WMMRUXMWydc

SEBI has defined large cap, mid cap and small cap companies as follows: SEBI has defined large cap, mid cap and small cap companies as follows: a. Large Cap: 1st -100th co

a. Large Cap: 1st -100th company in terms of full market capitalizationmpany in terms of full market capitalization b. Mid Cap: 101st -250th company in terms of full market capitalization b. Mid Cap: 101st -250th company in terms of full market capitalization

c. Small Cap: 251st compan

c. Small Cap: 251st company onwards in terms of full market capitalizationy onwards in terms of full market capitalization

Also an Equity scheme should invest minimum 65% of its assets in Equity and Equity related Also an Equity scheme should invest minimum 65% of its assets in Equity and Equity related instruments.

instruments.

Multi Cap Fund:

Multi Cap Fund: Investing across large cap, mid cap, sma Investing across large cap, mid cap, small cap stocks. The minimum investmentll cap stocks. The minimum investment in equity and equity related instruments shall be

in equity and equity related instruments shall be 65 percent of total assets.65 percent of total assets.

Large Cap Fund:

Large Cap Fund: Investing in large cap stocks. The Investing in large cap stocks. The minimum investment in equity and equityminimum investment in equity and equity related instruments of large cap companies shall b

related instruments of large cap companies shall be 80 percent of total assets.e 80 percent of total assets.

Mid Cap Fund:

Mid Cap Fund: Investing in mid cap stocks. The Investing in mid cap stocks. The minimum investment in equity and equityminimum investment in equity and equity related instruments of mid cap companies shall be

related instruments of mid cap companies shall be 65 percent of total assets.65 percent of total assets.

Large and Mid-Cap Fund:

Large and Mid-Cap Fund: Investing in both large cap and mid cap stocks. Large cap Stocks Investing in both large cap and mid cap stocks. Large cap Stocks – – Minimum 35%, Mid Cap stocks

Minimum 35%, Mid Cap stocks – – Min 35% of total assets. Min 35% of total assets.

Dividend Yield Fund:

Dividend Yield Fund: Predominantly investing in dividend yielding stocks. Predominantly investing in dividend yielding stocks.

Value Fund & Contra Fund:

Value Fund & Contra Fund: A A value value fundfund follows follows a a valuevalue investment strategy. Minimum investment in equity & equity related instruments shall be 65 investment strategy. Minimum investment in equity & equity related instruments shall be 65 percent o

percent of total f total assets.assets. Value Schemes invest in Undervalued CompaniesValue Schemes invest in Undervalued Companies. Investments in value. Investments in value funds yield benefits over longer holding periods.

funds yield benefits over longer holding periods. A contra fundA contra fund follows contrarian investment follows contrarian investment strategy. Mutual Funds will be permitted to offer either Value fund or Contra fund. strategy. Mutual Funds will be permitted to offer either Value fund or Contra fund.

Focused Fund:

Focused Fund: Investing Investing in in maximum maximum 30 30 stocks stocks (the (the scheme scheme needsneeds to mention where it intends to focus, viz., multi cap, large cap, mid cap, small cap). to mention where it intends to focus, viz., multi cap, large cap, mid cap, small cap).

Sectoral/ Thematic:

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Equity Linked Savings Scheme (ELSS):

Equity Linked Savings Scheme (ELSS): Tax saving scheme with a statutory lock in of 3 years.Tax saving scheme with a statutory lock in of 3 years. Minimum investment in equity and equity related instruments shall be 80 % of total assets (in Minimum investment in equity and equity related instruments shall be 80 % of total assets (in accordance with Equity Linked Saving Scheme, 2005 notified by the Ministry of Finance).

accordance with Equity Linked Saving Scheme, 2005 notified by the Ministry of Finance).

https://www.youtube.com/watch?v=Ne1k-BrcI9E&index=9&list=PLCZvkZJiAVK56z_al_5b-4WMMRUXMWydc

4WMMRUXMWydc

Equity Index Fund schemes

Equity Index Fund schemes are ideal for investors who are satisfied with a return approximately are ideal for investors who are satisfied with a return approximately equal to that of an index. These schemes attempt to replicate the performance of a particular index equal to that of an index. These schemes attempt to replicate the performance of a particular index such as the BSE Sensex, the NSE 50 (NIFTY). Invests in Index Stocks as per the Weightage. Fund such as the BSE Sensex, the NSE 50 (NIFTY). Invests in Index Stocks as per the Weightage. Fund Manager has no role in deciding on investments. These funds are not designed to outperform the Manager has no role in deciding on investments. These funds are not designed to outperform the Index and have Low Running Cost. An Index Fund with Low Tracking Error is a Good Fund. Index and have Low Running Cost. An Index Fund with Low Tracking Error is a Good Fund. Index fund is an example of Passive style of Fund management.

Index fund is an example of Passive style of Fund management. Training Video for Index or Passive Funds :

Training Video for Index or Passive Funds : https://www.youtube.com/watch?v=uq7ICqOk4bwhttps://www.youtube.com/watch?v=uq7ICqOk4bw DEBT Funds DEBT Funds https://www.youtube.com/watch?v=3w_Ta-iUJzc&index=7&list=PLCZvkZJiAVK56z_al_5b-4WMMRUXMWydc 4WMMRUXMWydc Overnight Fund:

Overnight Fund: The investment is in overnight securities having maturity of The investment is in overnight securities having maturity of 1 day.1 day.

Liquid Fund:

Liquid Fund: Investment is into debt & money market securities with maturity of upto 91 daysInvestment is into debt & money market securities with maturity of upto 91 days

Ultra Short Duration Fund:

Ultra Short Duration Fund: Investing in debt and money market instruments with MacaulayInvesting in debt and money market instruments with Macaulay duration between 3 months and 6 months.

duration between 3 months and 6 months.

Low Duration Fund:

Low Duration Fund: Investing in debt and money market instruments with MacaulaInvesting in debt and money market instruments with Macaula y durationy duration between 6 months and 12 months.

between 6 months and 12 months.

Money Market Fund:

Money Market Fund: Investing in money market instruments having maturity upto 1 Investing in money market instruments having maturity upto 1 year.year.

Short Duration Fund:

Short Duration Fund: Investing in debt and money market instruments with MacaulaInvesting in debt and money market instruments with Macaula y durationy duration between 1 year and 3 years.

between 1 year and 3 years.

Medium Duration Fund:

Medium Duration Fund: Investing in debt and money market instruments with MacaulaInvesting in debt and money market instruments with Macaula yy duration of the portfolio being between 3 years and 4 years. Portfolio Macaulay duration under duration of the portfolio being between 3 years and 4 years. Portfolio Macaulay duration under anticipated adverse situation is 1 year to 4

anticipated adverse situation is 1 year to 4 years.years.

Medium to Long Duration Fund:

Medium to Long Duration Fund: Investing in debt and money market instruments withInvesting in debt and money market instruments with

Macaulay duration between 4 years and 7 years. Portfolio Macaulay duration under anticipated Macaulay duration between 4 years and 7 years. Portfolio Macaulay duration under anticipated adverse situation is 1 year to 7

adverse situation is 1 year to 7 years.years.

Long Duration Fund:

Long Duration Fund: Investing in debt and money market instruments with Investing in debt and money market instruments with Macaulay durationMacaulay duration greater than 7 years.

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Credit Risk Fund:

Credit Risk Fund: Investing in below highest rated corporate bonds. The Investing in below highest rated corporate bonds. The minimum investment inminimum investment in corporate bonds shall be 65 percent of total assets only in AA and below rated corporate bonds corporate bonds shall be 65 percent of total assets only in AA and below rated corporate bonds (excludes AA+ rated corporate bonds).

(excludes AA+ rated corporate bonds).

Banking and PSU Fund:

Banking and PSU Fund: Investing in debt instruments of banks, Public Sector Undertakings,Investing in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds. The

Public Financial Institutions and Municipal Bonds. The minimum investment in such instrumentsminimum investment in such instruments should be 80 percent of total assets.

should be 80 percent of total assets.

Gilt Fund:

Gilt Fund:Investing in government securities across maturity. The minimum investment in G-Investing in government securities across maturity. The minimum investment in G-secs is defined to be 80 p

secs is defined to be 80 percent of total assets (across maturity).ercent of total assets (across maturity).

Floater Fund:

Floater Fund: An open ended debt scheme predominantly investing in floating rate instruments.An open ended debt scheme predominantly investing in floating rate instruments. Minimum investment in floating rate instruments shall be 65 percent of total a

Minimum investment in floating rate instruments shall be 65 percent of total a ssets.ssets.

Fixed Maturity Plans

-Fixed Maturity Plans - Fixed Maturity Plans (FMPs) are investment schemes floated by mutualFixed Maturity Plans (FMPs) are investment schemes floated by mutual funds and are close ended with a fixed tenure, the maturity period ranging from one month to funds and are close ended with a fixed tenure, the maturity period ranging from one month to three/five years. Fixed maturity plans are a kind of debt fund where the investment portfolio is three/five years. Fixed maturity plans are a kind of debt fund where the investment portfolio is closely aligned to the maturity of the scheme. The objective of such a scheme is to generate steady closely aligned to the maturity of the scheme. The objective of such a scheme is to generate steady returns over a fixed-maturity period and protect the

returns over a fixed-maturity period and protect the investor against Interest rate fluctuations.investor against Interest rate fluctuations.

Hybrid Funds

Hybrid Funds – – Investing in two or more asset class Investing in two or more asset class

https://www.youtube.com/watch?v=AXHEbVFHrpQ&index=8&list=PLCZvkZJiAVK56z_al_5b-4WMMRUXMWydc

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Conservative Hybrid Fund:

Conservative Hybrid Fund: Investment in debt Investment in debt instruments instruments 75 % and 90 % of total 75 % and 90 % of total assets whileassets while investment in Equity shall be between 10

investment in Equity shall be between 10 % and 25 % of total % and 25 % of total assets.assets.

Balanced Hybrid Fund:

Balanced Hybrid Fund: Investment in equity 40% to 60%, investment in debt 40% to 60%. Investment in equity 40% to 60%, investment in debt 40% to 60%. Arbitraging is not permitted in this scheme.

Arbitraging is not permitted in this scheme.

Aggressive Hybrid Fund:

Aggressive Hybrid Fund: Investment in equity 65 % to 80 % of total assets while investment in Investment in equity 65 % to 80 % of total assets while investment in debt instruments shall be between 20 %

debt instruments shall be between 20 % and 35 % of total assets.and 35 % of total assets. Mutual funds in India are permitted to offer either Aggressive H

Mutual funds in India are permitted to offer either Aggressive Hybrid Fund or Balanced Fund.ybrid Fund or Balanced Fund.

Dynamic Asset Allocation or Balanced Advantage:

Dynamic Asset Allocation or Balanced Advantage: It is an open ended dynamic asset allocation It is an open ended dynamic asset allocation fund with investment in equity/debt that is managed

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debt is 10 % of total assets. Minimum hedged & unhedged investment needs to be stated in the debt is 10 % of total assets. Minimum hedged & unhedged investment needs to be stated in the SID. Asset Allocation under defensive considerations may also b

SID. Asset Allocation under defensive considerations may also b e stated in the Offer Document.e stated in the Offer Document.

Solution Oriented Schemes: Solution Oriented Schemes: Retirement Fund:

Retirement Fund: An open ended retirement solution oriented scheme having a lock-in of 5 years An open ended retirement solution oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier).

or till retirement age (whichever is earlier).

Children’s Fund:

Children’s Fund: An open ended fund for investment for children having a lock-in for at least 5 An open ended fund for investment for children having a lock-in for at least 5 years or till the child attains age of majority (whichever is earlier).

years or till the child attains age of majority (whichever is earlier).

Other Schemes Other Schemes

Exchange Traded Funds (ETF)

Exchange Traded Funds (ETF) are also passive funds whose portfolio replicates an index orare also passive funds whose portfolio replicates an index or benchmark such

benchmark such as an as an equity market index equity market index or a or a debt index. debt index. The units are The units are issued to the issued to the investors ininvestors in a new fund offer (NFO) after which they are available for sale and purchase on a stock exchange. a new fund offer (NFO) after which they are available for sale and purchase on a stock exchange. Units are credited to the investor‟s demat account and the transactions post

Units are credited to the investor‟s demat account and the transactions post-NFO is done through-NFO is done through the trading and settlement platforms of the stock exchange. The units of the ETF are traded at real the trading and settlement platforms of the stock exchange. The units of the ETF are traded at real time prices that are linked to the changes in the underlying index.

time prices that are linked to the changes in the underlying index.

Gold Exchange Traded Funds (GETFs) Gold Exchange Traded Funds (GETFs) – –

https://www.youtube.com/watch?v=VOzaJ55IM5o&index=10&list=PLCZvkZJiAVK56z_al_5b-4WMMRUXMWydc

4WMMRUXMWydc

Gold Exchange Traded Funds offer investors an innovative, cost-efficient and secure way to access Gold Exchange Traded Funds offer investors an innovative, cost-efficient and secure way to access the gold market. Gold ETFs are intended to offer investors a means of participating in the gold the gold market. Gold ETFs are intended to offer investors a means of participating in the gold bullion

bullion market market by by buying buying and and selling selling units units on on the the Stock Stock Exchanges, Exchanges, without without taking taking physicalphysical delivery of gold. GOLD

delivery of gold. GOLD ETF invests in 99.99% pure ETF invests in 99.99% pure GOLD. GOLD. NAV of GOLD NAV of GOLD ETF depends onETF depends on Real Prices of GOLD Bullion. Gold funds inv

Real Prices of GOLD Bullion. Gold funds invest in gold and gold-related securities.est in gold and gold-related securities.

Actively managed funds are funds where the fund manager has the flexibility to choose the Actively managed funds are funds where the fund manager has the flexibility to choose the investment portfolio, within the broad parameters of the investment objective o

investment portfolio, within the broad parameters of the investment objective o f the scheme.f the scheme. Passive funds invest on the basis of a spe

Passive funds invest on the basis of a specified index, whose performance it seeks to cified index, whose performance it seeks to track.track.

Capital Protected Schemes are close-ended schemes, which are structured to ensure that investors Capital Protected Schemes are close-ended schemes, which are structured to ensure that investors get their principal back, irrespective of what happ

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Sale Price - Is the price you pay when you invest in a scheme. Also called as Offer Price. Sale Price - Is the price you pay when you invest in a scheme. Also called as Offer Price. Sale Price

Sale Price – – NAV = Entry Load NAV = Entry Load

Repurchase Price - Price at which units are repurchased / Redeemed by the Mutual Fund. Repurchase Price - Price at which units are repurchased / Redeemed by the Mutual Fund. NAV

NAV – – Repurchase Price = Exit Load Repurchase Price = Exit Load

For better understanding of NAV, Sale Price etc kindly watch below video For better understanding of NAV, Sale Price etc kindly watch below video https://www.youtube.com/watch?v=rVuo_gTWTLQ

https://www.youtube.com/watch?v=rVuo_gTWTLQ

WHY SHOULD YOU INVEST IN MUTUAL FUNDS? WHY SHOULD YOU INVEST IN MUTUAL FUNDS? 1. Professional Management

-1. Professional Management - You avail of the services of experienced and skilled professionalsYou avail of the services of experienced and skilled professionals who are backed by a dedicated investment research team.

who are backed by a dedicated investment research team.

2. Diversification

-2. Diversification - Mutual Funds invest in a number of companies belonging to differentMutual Funds invest in a number of companies belonging to different industries and sectors. This diversification reduces the risk .

industries and sectors. This diversification reduces the risk .

3. Convenient Administration - Mutual

3. Convenient Administration - Mutual Funds save your time and make investing easy and Funds save your time and make investing easy and convenient.

convenient.

4. Return Potential

-4. Return Potential - Over a medium to long term, Mutual Funds have the potential to provide aOver a medium to long term, Mutual Funds have the potential to provide a higher return as they invest in a

higher return as they invest in a diversified basket of selected securities.diversified basket of selected securities.

5. Low Costs

-5. Low Costs - Mutual Funds are a relatively less expensive to directly investing in the capitalMutual Funds are a relatively less expensive to directly investing in the capital markets because the benefits of reduction in share brokerage which translate into lower costs for markets because the benefits of reduction in share brokerage which translate into lower costs for investors.

investors.

6. Liquidity

-6. Liquidity - In open-ended schemes, you can get your money back promptly at Net Asset ValueIn open-ended schemes, you can get your money back promptly at Net Asset Value (NAV) related prices from the Mutual Fund itself. With close-ended schemes, you can sell your (NAV) related prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price.

units on a stock exchange at the prevailing market price.

7. Transparency

-7. Transparency - You get regular information on the value of your investment in addition toYou get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class disclosure on the specific investments made by your scheme, the proportion invested in each class

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An investor buying into a scheme gets to select the preferred option also. The investment that an An investor buying into a scheme gets to select the preferred option also. The investment that an investor makes in a scheme is translated

investor makes in a scheme is translated into a certain number of „Units‟ in the scheme. Theinto a certain number of „Units‟ in the scheme. The number of units multiplied by its face value (Rs10) is the capital

number of units multiplied by its face value (Rs10) is the capital of the schemeof the scheme – – its Unit Capital. its Unit Capital. When the profitability metric is positive, the true worth of a unit, also called Net Asset Value When the profitability metric is positive, the true worth of a unit, also called Net Asset Value (NAV) goes up.

(NAV) goes up.

When a scheme is first made available for investment, it is called a

When a scheme is first made available for investment, it is called a „New Fund Offer‟ (NFO).„New Fund Offer‟ (NFO). The The money mobilized from investors is invested by the scheme as per the investment objective money mobilized from investors is invested by the scheme as per the investment objective committed. Profits or losses, as the case might be, belong to the investors. The investor does not committed. Profits or losses, as the case might be, belong to the investors. The investor does not however bear a loss higher than the amount invested by him.

however bear a loss higher than the amount invested by him.

The relative size of mutual fund companies is assessed by their assets under management (AUM). The relative size of mutual fund companies is assessed by their assets under management (AUM). The AUM captures the impact of the profitability metric and the flow of unit-holder money to or The AUM captures the impact of the profitability metric and the flow of unit-holder money to or from the scheme.

from the scheme.

Lack of portfolio customization and an

Lack of portfolio customization and an overload of schemes & scheme variants overload of schemes & scheme variants are drawbacks.are drawbacks. RISK CLASSIFICATION BASED ON RISKOMETER

RISK CLASSIFICATION BASED ON RISKOMETER

https://www.youtube.com/watch?v=BCdjYBqP6f4&index=13&list=PLCZvkZJiAVK56z_al_5b-4WMMRUXMWydc

4WMMRUXMWydc

Riskometer is a pictoral representation of the risk to the principal invested in a mutual fund Riskometer is a pictoral representation of the risk to the principal invested in a mutual fund product. Risk will be categorized in five levels. T

product. Risk will be categorized in five levels. T here will also be a written statement of the risk tohere will also be a written statement of the risk to the principal below the „Riskometer‟.

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

 GROWTH FUNDSGROWTH FUNDS



 JUNK BOND OR HIGH YIELD SCHEMESJUNK BOND OR HIGH YIELD SCHEMES



 DIVERSIFIED EQUITY FUNDSDIVERSIFIED EQUITY FUNDS



 INDEX FUNDSINDEX FUNDS



 VALUE FUNDSVALUE FUNDS



 EQUITY INCOME OR DIVIDEND YIELD FUNDSEQUITY INCOME OR DIVIDEND YIELD FUNDS



 FIXED ASSET ALLOCATION FUNDSFIXED ASSET ALLOCATION FUNDS



 MIPMIP



 CAPITAL PROTECTION ORIENTED FUNDSCAPITAL PROTECTION ORIENTED FUNDS



 CAPITAL PROTECTED FUNDCAPITAL PROTECTED FUND



 DIVERSIFIED DEBT FUNDSDIVERSIFIED DEBT FUNDS



 GILT FUNDSGILT FUNDS



 LIQUID FUNDS OR MONEY MARKET FUNDS - Lowest RiskLIQUID FUNDS OR MONEY MARKET FUNDS - Lowest Risk FUND STRUCTURE AND CONSTITUENTS

FUND STRUCTURE AND CONSTITUENTS

Mutual funds in India are governed by SEBI (Mutual Fund) Regulations, 1996.The regulations Mutual funds in India are governed by SEBI (Mutual Fund) Regulations, 1996.The regulations permit

permit mutual mutual funds funds to to invest invest in in securities securities including including money money market market instruments, instruments, or or gold gold or or goldgold related instruments or real estate assets.

related instruments or real estate assets.

Mutual funds are constituted as Trusts. The mutual fund trust is created by one or more Sponsors, Mutual funds are constituted as Trusts. The mutual fund trust is created by one or more Sponsors, who are the main persons behind the mutual fund operation.

who are the main persons behind the mutual fund operation.

Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund trust, are the investors Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund trust, are the investors who invest in various schemes of the mutual fund. In order to perform the trusteeship role, either who invest in various schemes of the mutual fund. In order to perform the trusteeship role, either individual may be appointed as trustees or a Trustee company may be appointed. When individuals individual may be appointed as trustees or a Trustee company may be appointed. When individuals are appointed trustees, they are jointly referred to as Board of Trustees. A trustee company are appointed trustees, they are jointly referred to as Board of Trustees. A trustee company functions through its Board of Directors.

functions through its Board of Directors.

Day to day management of the schemes is handled by an AMC. The AMC is appointed by the Day to day management of the schemes is handled by an AMC. The AMC is appointed by the sponsor or the Trustees. Although the AMC manages the

sponsor or the Trustees. Although the AMC manages the schemes, custody of the assets ofschemes, custody of the assets of

the scheme (securities, gold, gold-related instruments & real estate assets) is with a Custodian, the scheme (securities, gold, gold-related instruments & real estate assets) is with a Custodian, who is appointed by the Trustees.

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RTA (Registrar and Transfer Agent) is appointed by AMC and

RTA (Registrar and Transfer Agent) is appointed by AMC and maintains investor‟s records.maintains investor‟s records. Investor Service Centres (ISC), are offices of R&T. It is not compulsor

Investor Service Centres (ISC), are offices of R&T. It is not compulsor y to appoint a RTA.y to appoint a RTA.

Scheme Auditor & AMC Auditor are different. Scheme Auditor is appointed by Trustee, AMC Scheme Auditor & AMC Auditor are different. Scheme Auditor is appointed by Trustee, AMC auditor by AMC.

auditor by AMC.

Role of calculating the NAV & DISCLOSING IT is done by Fund Accountant. It is not Role of calculating the NAV & DISCLOSING IT is done by Fund Accountant. It is not compulsory to Outsource Fund Accounting Activity.

compulsory to Outsource Fund Accounting Activity.

LEGAL AND REGULATORY ENVIRONMENT LEGAL AND REGULATORY ENVIRONMENT

SEBI regulates mutual funds, depositories, custodians and registrars & transfer agents in the SEBI regulates mutual funds, depositories, custodians and registrars & transfer agents in the country. AMFI is an industry body, but not a self-regulatory organization. The AMFI Code of country. AMFI is an industry body, but not a self-regulatory organization. The AMFI Code of Ethics sets out the standards of good practices to be followed by the Asset Management Ethics sets out the standards of good practices to be followed by the Asset Management Companies in their operations and in their d

Companies in their operations and in their dealings with investors, intermediaries & the public.ealings with investors, intermediaries & the public. AMFI has framed AGNI, a set of guidelines and code of conduct for intermediaries, consisting of AMFI has framed AGNI, a set of guidelines and code of conduct for intermediaries, consisting of individual agents, brokers, distribution houses and banks

individual agents, brokers, distribution houses and banks engaged in selling of mutual fundengaged in selling of mutual fund products.

products.

Investment objective defines the broad investment charter. Investment policy describes in greater Investment objective defines the broad investment charter. Investment policy describes in greater detail, the kind of portfolio that will be

detail, the kind of portfolio that will be maintained. Investment strategies are decided on amaintained. Investment strategies are decided on a Day-to-day basis by the senior management of

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13 13

7.

7. Scheme-wise Annual Report or an abridged Scheme-wise Annual Report or an abridged summary has to be mailed to all summary has to be mailed to all unit-holdersunit-holders within 6 months of the close of the

within 6 months of the close of the financial year.financial year. 8.

8. PAN based Consolidated Account Statement (CAS) for each calendar month will be sent byPAN based Consolidated Account Statement (CAS) for each calendar month will be sent by post/email on or before 10th of the succeeding month.

post/email on or before 10th of the succeeding month. 9.

9. SOA to dormant investors (no transaction during the previous 6 months) can be sent along withSOA to dormant investors (no transaction during the previous 6 months) can be sent along with the Portfolio Statement / Annual Return.

the Portfolio Statement / Annual Return. 10.

10. In the case of SIP / STP In the case of SIP / STP / SWP SoA dispatched within / SWP SoA dispatched within 10 working days of Initial transaction10 working days of Initial transaction and thereafter Once in a Quarter.

and thereafter Once in a Quarter. 11.

11. On specific request, SOA to be sent On specific request, SOA to be sent with in 5 working days. Statement of with in 5 working days. Statement of accounts (SOA) is toaccounts (SOA) is to be sent to investors within 5 days of closure of the NFO.

be sent to investors within 5 days of closure of the NFO. 12.

12. Investor can ask for a Unit Certificate for his Unit Holding. It is different from a SOA.Investor can ask for a Unit Certificate for his Unit Holding. It is different from a SOA. SOASOA contains opening balance, transactions during the period & closing balance. A Unit Certificate contains opening balance, transactions during the period & closing balance. A Unit Certificate mentions the number of Units held by the investor. SOA is like a Bank pass book. Unit mentions the number of Units held by the investor. SOA is like a Bank pass book. Unit Certificate is like a Balance Confirmation Certificate. Unit Certificates are non-transferable & Certificate is like a Balance Confirmation Certificate. Unit Certificates are non-transferable & no transactional convenience. Unit Certificate if requested then

no transactional convenience. Unit Certificate if requested then AMC will issue within 5 days.AMC will issue within 5 days. 13.

13. The investor/s can appoint upto 3 nominees, who will be entitled to the Units in the event ofThe investor/s can appoint upto 3 nominees, who will be entitled to the Units in the event of the demise of the investor/s. The investor can also pledge the units. This is normally done to the demise of the investor/s. The investor can also pledge the units. This is normally done to offer security to a financier.

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19.

19. The Annual Report of the AMC has to be displayed on the website of the mutual fund. TheThe Annual Report of the AMC has to be displayed on the website of the mutual fund. The Scheme-wise Annual Report will mention that Unit-holders can ask for a

Scheme-wise Annual Report will mention that Unit-holders can ask for a copy of the AMC‟scopy of the AMC‟s Annual Report.

Annual Report. 20.

20. The trustees / AMC cannot make any change in the fundamental attributes of a scheme, unlessThe trustees / AMC cannot make any change in the fundamental attributes of a scheme, unless the requisite processes have been complied. This includes option to dissenting unit-holders to the requisite processes have been complied. This includes option to dissenting unit-holders to exit at the prevailing Net Asset Value, without any exit load. This exit window has to be open exit at the prevailing Net Asset Value, without any exit load. This exit window has to be open for at least 30 days.

for at least 30 days. 21.

21. Merger or consolidation of schemes is not considered a change in the fundamental attributeMerger or consolidation of schemes is not considered a change in the fundamental attribute ofof the surviving scheme

the surviving scheme if the required conditions are met.if the required conditions are met. 22.

22. The appointment of the AMC for a mutual fund can be terminated by a majority of the trusteesThe appointment of the AMC for a mutual fund can be terminated by a majority of the trustees or by 75% of

or by 75% of the Unit-holders of the Scheme. the Unit-holders of the Scheme. 75% of the Unit-holders 75% of the Unit-holders can pass a resolution tocan pass a resolution to wind-up a scheme.

wind-up a scheme.

Limitation of Rights of Unit-holders Limitation of Rights of Unit-holders

If an investor feels that the trustees have not fulfilled their obligations, then he can file a suit If an investor feels that the trustees have not fulfilled their obligations, then he can file a suit against the trustees for breach of trust. Under the law, a trust is a notional entity. Therefore, against the trustees for breach of trust. Under the law, a trust is a notional entity. Therefore, investors cannot sue the trust (but they can file suits a

investors cannot sue the trust (but they can file suits a gainst trustees, as seen above).gainst trustees, as seen above). The principle of caveat emptor (let the buyer beware) applies to mutual fund investments. The principle of caveat emptor (let the buyer beware) applies to mutual fund investments.

Protections under the Companies Act, 2013 are not available to investors in a mutual fund scheme. Protections under the Companies Act, 2013 are not available to investors in a mutual fund scheme.

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(b) Statement of Additional Information (SAI), which has statutory information about the mutual (b) Statement of Additional Information (SAI), which has statutory information about the mutual fund that is offering the scheme.

fund that is offering the scheme.

In practice, SID and SAI are two separate documents, though the legal technicality is that SAI is In practice, SID and SAI are two separate documents, though the legal technicality is that SAI is part of the SID. Both documents need to be updated regularly.

part of the SID. Both documents need to be updated regularly.

Offer Documents in the market are “vetted” by SEBI, though SEBI

Offer Documents in the market are “vetted” by SEBI, though SEBI does not formally “approve”does not formally “approve” them. KIM is essentially a summary of the SID and SAI. It is more easily and widely distributed in them. KIM is essentially a summary of the SID and SAI. It is more easily and widely distributed in the market. As per SEBI regulations, every app

the market. As per SEBI regulations, every application form is to be accompanied blication form is to be accompanied b y the KIM.y the KIM. Scheme Information Document (SID)

Scheme Information Document (SID) – – has details of the scheme. Draft SID is available for has details of the scheme. Draft SID is available for viewing in SEBI website for 21 working days. Final SID is hosted on AMFI site 2 days before the viewing in SEBI website for 21 working days. Final SID is hosted on AMFI site 2 days before the issue opens.

issue opens.

Statement of Additional Information (SAI) contains statutory information. Single SAI is enough Statement of Additional Information (SAI) contains statutory information. Single SAI is enough for all the schemes of a Mutual Fund. SAI is part of SID. SID should be read in conjunction with for all the schemes of a Mutual Fund. SAI is part of SID. SID should be read in conjunction with the SAI and not in

the SAI and not in Isolation.Isolation.

Updation of SID - First Updation after NFO Updation of SID - First Updation after NFO

For Scheme launched in the 1

For Scheme launched in the 1stst half of FY half of FY  Within 3 months of the end of SAME FY. Within 3 months of the end of SAME FY. For Scheme launched in the 2

For Scheme launched in the 2ndnd half of FY half of FY Within 3 months of the end of NEXT FY. Within 3 months of the end of NEXT FY.

Regular Updation Regular Updation

SID needs to be updated every year. SID needs to be updated every year.

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